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SEC Seeks to Ease Fears of Regulatory Sweep

Wall Street: Officials say new corporate 'fair disclosure' rules aren't designed to trap analysts or investors.

November 02, 2000|JOHN POIRIER | REUTERS

New federal "fair-disclosure" rules for corporate information won't lead to witch hunts for potential violators, a top securities cop told Wall Street on Wednesday.

But he warned that officials will remain vigilant in enforcing the controversial regulations.

"I hope to convince you there is no need for fear or hysteria" over the new rules, Richard Walker, director of the Securities and Exchange Commission's enforcement division, said in remarks prepared for a Securities Industry Assn. meeting in New York.

The SEC on Oct. 23 implemented Regulation FD, which bars companies from giving key business-outlook information to Wall Street analysts and institutional investors before the rest of the public gets it.

The SIA, Wall Street's lobby group, has said the regulation would cause a "chilling effect" on regular communication between companies and their major investors and analysts.

Indeed, some companies have already announced they will refrain from regular business briefings of analysts that had been customary for many years.

Walker said the rules weren't designed to trap company officials or analysts. "There will be no FD SWAT teams, and I do not envision any FD sweeps" to ensure compliance, he said.

"At the same time, however, you should understand that the enforcement division is not a toothless tiger," he warned.

"Regulation FD was not intended to be revolutionary, though it was clearly drafted to change behavior and to end practices that were universally regarded as unfair," Walker said.

He made clear that regulators will be watching out for "egregious violations involving the intentional or reckless disclosure" of corporate information to selected individuals or groups.

But in an apparent attempt to calm an alarmed Wall Street, he said violations of the rules won't fall under securities-fraud provisions, nor will there be exposure to private liability for transgressions.

At the same time, Walker said the SEC won't accept roundabout maneuvers by company officials who speak in code or gesture to select analysts or investors with a wink or a nod.

"We'll be on the lookout for situations involving multiple violations that an issuer claims were nonintentional," he said. "No violation will occur if the speaker did not act knowingly or recklessly."

While Regulation FD focuses on how and which type of information is passed on from companies to analysts and traders, analysts may also be at risk of violating the new rules.

Walker cautioned analysts against coercing company officials by threatening to take actions that would hurt the company's stock price if officials refuse to give nonpublic information.

By doing so, an official would violate FD practices and the analyst could be causing or abetting the official's violation.

"It is OK to be persistent and dogged; it is not OK to be abusive and threatening," he said.

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